District of Columbia:

Financial and Program Management Improvements Needed for Tuition Assistance Grant Program

GAO-06-14: Published: Oct 28, 2005. Publicly Released: Oct 28, 2005.

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Congress created the District of Columbia Tuition Assistance Grant (DCTAG) program in 1999 to provide D.C. college-bound residents with greater choices among institutions of higher education by affording them the benefits of in-state tuition at state colleges and universities outside the District of Columbia. Congress appropriated $17 million annually for fiscal years 2000 through 2004 and $25.6 million for fiscal year 2005. GAO was asked to assess whether (1) adequate controls exist over the use of federal funds, including processes to determine institution and student eligibility, manage the cash needs of the program, and pay administrative expenses; (2) funds for the DCTAG program are accounted for separately from the District's general fund; and (3) administrative expenses for the program charged against federal funds are within the 7 percent limit of the total amount appropriated for the program.

The District's State Education Office (SEO) has taken actions to put program and financial management procedures in place, but DCTAG is at risk in the areas of student eligibility and program budgeting. The District of Columbia Tuition Assistance Grant program has effective controls for determining the eligibility of higher education institutions to participate in the program and for processing institutions' invoices for payment. Other controls, however, were less effective. SEO did not have sufficient documentation to demonstrate that some students approved for DCTAG program funds were eligible because documents required to be submitted by applicants were not available. The most commonly missing documents were those intended to establish domicile in the District. Moreover, SEO officials were not verifying applicants' Social Security numbers, which should be used to establish citizenship. Furthermore, SEO did not have documentation or procedures for determining the eligibility of applicants with special circumstances. The SEO has experienced significant turnover at the top management levels since it was created by legislation in 2000. High management turnover affects an organization's control environment and its ability to plan, direct, and control operations to effectively and strategically achieve its mission. The District established dedicated cash accounts for the DCTAG program, separate from the District's general fund, as required by law. Reconciliations between these dedicated bank accounts and the District's financial management system, however, had not been performed prior to our review. At our request, the Office of Finance and Resource Management (OFRM) reconciled the dedicated bank accounts and discovered that the District's general fund had not been reimbursed for approximately $8.3 million for prior-period cash expenditures made from the District's general fund on behalf of the DCTAG program. Also, about $2.7 million in interest earned since the DCTAG-dedicated accounts were established had not been recorded as funds available for the program. The District's forecasting method to project the number of students eligible to receive DCTAG funds in current and future years has not been reviewed for methodological soundness. While projections are based on the numbers of students that apply for the first time and those who submit renewal applications during a fiscal year, these projections have not been measured against actual results to include the historical experience of the program. While the District reported that it used 5.3 percent ($0.9 million) of the federal funds during fiscal year 2004 for DCTAG program administrative expenses, the District does not track the full amount of administrative expenses incurred for the program. District officials estimate that operating the DCTAG program costs more than the 7 percent legislatively set limit, and these additional costs were absorbed using District funds.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Chief Financial Officer of the District of Columbia should direct the Office of Finance and Resource Management to routinely conduct reconciliations and document the reconciliations performed between the DCTAG bank accounts and financial data in the System of Accounting and Reporting.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) program found that the District was not conducting reconciliations of its DCTAG-dedicated bank accounts, resulting in an $11 million unreconciled difference. GAO recommended that Office of Finance and Resource Management (OFRM) routinely conduct reconciliations and document the reconciliations performed between the DCTAG bank accounts and financial data in the District's System of Accounting and Reporting (SOAR). As of 2008, the Office of the Chief Financial Officer (OCFO), which includes the Office of Financial Operations and Systems (OFOS), is now responsible for accounting for financial activities. In response to our recommendation, as of 2008, OCFO established procedures requiring reconciling DCTAG bank accounts with financial data in SOAR on a monthly basis and requiring the reconciliations be provided to OFOS quarterly, to complete District-wide reconciliations. Additionally, in February 2009, OFOS required that all District agencies complete reconciliation of District agency controlled cash accounts, including DCTAG bank accounts within 10 days subsequent to the end of month closing. With the establishment of procedures for routine reconciliations and documentation between the DCTAG bank accounts and financial data in SOAR, the District has reduced the risk that errors made when recording DCTAG transactions would occur undetected and result in the understatement or overstatement of the DCTAG bank accounts, potentially adversely affecting the DCTAG program's cash flow.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to refine the current mechanisms for identifying and recording the actual costs of administering the DCTAG program, in coordination with the Office of the Chief Financial Officer and OFRM.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) found that the District did not track the full amount of administrative expenses incurred by the DCTAG program, but estimated that the administrative cost of operating the DCTAG program was more than the seven percent legislatively set limit for federal funding. GAO recommended that the District refine the current mechanisms for identifying and recording the actual costs of administering the DCTAG program, in coordination with the District's financial office. In response, beginning in 2008 the District implemented procedures for recording DCTAG related administrative costs such as salaries, benefits, and supplies, in the District's financial record system under specific accounting codes, segregating DCTAG program costs -- tuition for students -- from administrative costs. Additionally, procedures now provide for regular monitoring of DCTAG administrative spending to verify that spending does not exceed appropriation levels. In July 2010, we verified that these procedures to separately account for DCTAG administrative costs were effective. With the District' s establishment of enhanced procedures for identifying and recording the actual costs of administering the DCTAG program, the District has reduced the risk of undercharging the DCTAG program for administrative expenses incurred and relying on other District funds to absorb the additional costs.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to coordinate with OFRM and the Office of Budget and Planning to ensure that interest earned on DCTAG-dedicated bank accounts is made available to be expended for the DCTAG program.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia Tuition Assistance Grant (DCTAG) program found that approximately $2.7 million in interest earned from the time DCTAG-dedicated bank accounts were established in 2001 through June 30, 2005 had not been budgeted as funds available for the program. According to District officials, the interest earned was considered to be an integral part of long-term planning and available to be budgeted for the DCTAG program; however, budget authority for the interest earned on DCTAG program funds had not been requested. GAO recommended that District coordinate its education office with its financial office to ensure that interest earned on DCTAG-dedicated bank accounts is made available to be expended for the DCTAG program. In response, the District established a separate District controlled bank account for DCTAG, beginning in 2008. The separate account allows the District to recognize interest earnings for DCTAG funds, as earned and reported by the banking institution on a monthly basis. Further, earned interest is now recorded in the System of Accounting and Reporting (SOAR), the District's financial system, in accord with the District's Office of the Chief Financial Officer's cash management requirements. Once earned interest is posted in SOAR and recognized, the revenues become available for budget authority. In July 2010, we verified that the District was recognizing interest earned on DCTAG funds and recording it accordingly in SOAR within the appropriate time period. Because the District now routinely recognizes interest earned on its DCTAG-dedicated bank account as available to be expended, the District has reduced the risk that interest earned on the DCTAG funds would accrue undetected and result in an understatement of DCTAG funds available to be expended, potentially adversely affecting the DCTAG program's cash flow.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to develop a sound methodology for forecasting (1) numbers of students in the program and (2) funds needed for future fiscal years.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) Program found that the District's forecasting method used to estimate the number of students and the average cost per student for those participating in the DCTAG program was based on assumptions that did not reflect historical experience or other available information. According to District officials, they did not have the necessary information available on the number of high school graduates continuing on to college in other states or jurisdictions to project current and future needs for the DCTAG program. District officials stated that they recognized the need to develop a sound methodology for making these projections, but its focus had been on recruitment of students and colleges and universities to participate in the program. GAO recommended that the District develop a sound methodology for forecasting (1) numbers of students in the DCTAG program and (2) funds needed for future fiscal years. In response, in August 2009, the District completed a comprehensive retention and graduation study on DCTAG grantees, collecting information needed to develop a sound methodology for forecasting. Additionally, with the consolidation of all state education functions in 2008, the District now has the ability to collect necessary DCTAG related information, such as District-wide graduation rates. With the District's improved procedures for collecting student data needed for forecasting; it has made significant progress towards developing a sound methodology for forecasting number of students in the DCTAG program and funds needed for future fiscal years. If fully and effectively implemented, these activities should enable, both Congress and the District to be able to make more informed decisions about funding needs for the DCTAG program and determine how to best use available resources.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to develop and retain documentation that clearly shows how eligibility decisions are reached when it reviews applications submitted by students with unusual circumstances.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) found that the District did not have a process in place to document how eligibility determinations were made for applicants who could not provide required DCTAG documents as a result of unusual or special circumstances. GAO recommended that the District develop and retain documentation demonstrating how eligibility decisions are reached when the District reviews applications submitted by student applicants with unusual circumstances. In response, in 2008, the District established new procedures that included a new Higher Education Financial Services Professional Judgment Policy form to document any instances of when a DCTAG counselor exercised professional judgment to determine the eligibility of a student applicant with unusual or special circumstances. The District's procedures now require that the form documents approval by the Director or a designee, of the counselor's exercise of professional judgment. Under the 2008 procedures, the form, along with additional supporting documentation, if applicable, such as death certificates, is to be included in the applicant's file. Further, in June 2010, we verified that completed application files submitted after 2008 demonstrated that the District implemented these procedures and retained required documentation. We observed that the files contained sufficient documentation showing eligibility decisions made by DCTAG counselors for applicants with unusual circumstances, as determined by District officials. With the development of uniform procedures documenting professional judgment made for applicants with unusual circumstances, the District has reduced the risk of providing DCTAG program funds to ineligible students.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to establish and implement procedures to ensure that sufficient evidence is obtained and maintained to demonstrate that applicants are actually domiciled in the District prior to providing participants with DCTAG funding.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) program found that the DCTAG program's applicant files lacked sufficient proof of applicants' domicile in the District of Columbia. Specifically, applicants either did not provide the required documents or the documents filed were not sufficient to establish the applicants' domicile in the District. According to District officials, the lack of sufficient documentation was caused by the creation of the new program and the time needed to firmly establish procedures for reviewing applications. GAO recommended that the District establish and implement procedures to ensure that sufficient evidence is obtained and maintained to demonstrate that applicants are domiciled in the District prior to providing participants with DCTAG funding. In response, the District provides its DCTAG application and a supporting documents checklist, including documentation demonstrating the applicant is domiciled in the District, on the District's Web site. The District now requires applicants to provide documents for domicile verification, along with other documents, through mail or hand delivery. The District verifies domicile of the applicant primarily through certified copies of the D-40 Income Tax Return (the District's income tax return), filed by the applicant or dependent applicant's parent(s), guardian(s), or spouse. In cases where the applicant is not required to file income taxes, the applicant is required to submit documentation of receipt of assistance covering the previous 12 months. Additionally, all applicants are now required to provide a utility bill within 45 days of the submitting the application, showing the complete name and mailing address of the applicant or parent/legal guardian on the utility bill. The District also now requires applicants and parent(s), guardian(s) or spouse of dependent applicants to sign a statement affirming the applicant is domiciled in the District and intends to continue to be domiciled in the District. In June 2010, we verified that the District has implemented the procedures listed above and maintained required documentation by reviewing completed application files submitted after 2008. We observed that the files contained required and sufficient documentation for proof of domicile, as determined by District officials. With the improved procedures regarding required proof of domicile documentation, the District has reduced the risk of DCTAG program funds being obtained by individuals who are not eligible for the funds, because they are not domiciled in the District of Columbia.

    Recommendation: The Mayor of the District of Columbia should direct the head of the State Education Office to require applicants for DCTAG program funds to provide a valid Student Aid Report or other document with similar information with their applications so that applicants' identities and citizenship will have been verified by the federal government before the District receives the information.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: The District of Columbia Government's State Superintendent for Education now requires that applicants for the DC Tuition Assistance Grant Program complete the Free Application for Federal Student Aid (FAFSA) before applying online and provide a Student Aid Report along with other documents.

    Recommendation: The Chief Financial Officer of the District of Columbia should direct the Office of Finance and Resource Management to establish and implement procedures to ensure that reimbursements that are due the District's general fund for all expenditures made on behalf of the DCTAG program are executed timely for the correct amounts.

    Agency Affected: District of Columbia

    Status: Closed - Implemented

    Comments: GAO's 2005 report on the District of Columbia's Tuition Assistance Grant (DCTAG) found that the District did not have effective controls needed to ensure appropriate reimbursement to the District's general fund for DCTAG tuition grants and paid program administrative expense disbursements. The Office of Finance and Resource Management (OFRM) only periodically calculated the amount to reimburse and did not base the calculation on a reconciliation of DCTAG fund activities. As a result, GAO found that OFRM did not include a significant amount of DCTAG expenditures, $8.3 million, in its calculation and the District was not reimbursed for this amount. GAO recommended that the District establish and implement procedures to ensure that reimbursements that are due to the District's general fund for all expenditures made on behalf of the DCTAG program are executed timely and for the correct amounts. The District established policies and procedures requiring the Office of the Chief Financial Officer (OCFO), now, to be responsible for calculating DCTAG reimbursement amounts. Beginning 2008, OCFO receives a list of program disbursements -- tuition for students, on a quarterly basis to verify with the bank that disbursement checks on the list have cleared. Once cleared, OCFO is to process a wire transfer for reimbursement to the District's general fund. Additionally, beginning 2008, DCTAG related administrative costs such as salaries, benefits, and supplies are to be recorded in the District's financial record system under specific accounting codes, segregating DCTAG program costs from administrative costs, to facilitate tracking the total amount of administrative costs to reimburse to the District's general fund. With the improved procedures for ensuring that reimbursements due to the general fund are executed timely and for the correct amounts, the District has reduced the risk of excluding a significant amount of disbursements for reimbursement to it's general fund, which, if not addressed, could have affected the District's cash flow and potentially contributed to the need for the District to borrow funds to cover short-term needs.

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